Tax discount for unincorporated businesses

In Australia, most small businesses are not incorporated businesses, and they do not pay the company tax rate.

Instead, many small businesses across our country operate as a sole trader, as a partnership or as a trust.

To help all Australian small businesses grow, the Government will also provide a 5 per cent tax discount to unincorporated businesses with annual turnover less than $2 million from 1 July 2015. This delivers a tax cut of $1.8 billion over the next four years.

This tax cut is broadly in line with the 1.5 percentage point tax cut for small incorporated companies.

This means individual taxpayers still calculate their business and personal income in the same way, and then they get a 5 per cent discount on the tax payable on their business income.

The discount will be capped at $1,000 per individual in an income year, and it will be delivered as a tax credit in their tax return.

This tax cut for unincorporated business entities will put money back in the hands of small business operators, so they can reinvest to grow their business and employ new staff.

A thriving small business sector means a thriving economy to benefit all Australians.

Most Australian small businesses are unincorporated

How this will help unincorporated small businesses

Small business (annual turnover under $2 million)

Ashley is a Victorian Angus cattle farmer running her farm as a sole trader.

Ashley's cattle farm has an annual turnover of $300,000 and taxable income of $75,000. This is her only income.

All individuals with income from a small unincorporated business will receive an annual tax discount of up to $1,000

Current law

Under the current law Ashley pays tax at her marginal tax rates and pays around $16,000 in total.

New law

Under the new law Ashley's $16,000 tax bill on her business income is reduced by 5 per cent, or $800. While there is no change in her tax rate, under the new law Ashley pays only $15,200 tax.

Benefit

Ashley is $800 better off than she was before this tax cut. With the five per cent tax discount, Ashley has an extra $800 to spend on her business.

Current law

New law

Turnover

$300,000

$300,000

Taxable income

$75,000

$75,000

Tax paid

$16,000

$15,200

Benefit

+$800

PLUS other taxation benefits

As a small business, Ashley's cattle farm may also be eligible for a range of other taxation benefits including:

accelerated depreciation (see pg 11)

small business concessions on capital gains tax

simplified accounting and reporting arrangements

immediate deduction for certain pre paid business expenses

option to account for GST on a cash basis

option to elect for annual apportionment of some GST input credits

option to pay GST by quarterly instalments

PAYG instalments based on GDP adjusted notional tax

Farmers will be able to immediately deduct fencing and water facilities and deduct fodder storage over three years.